Question

2. Zion Seating Co., a manufacturer of chairs, had the following data for 2017: Sales 2,400 units Sales price $40 per unit Variable costs $15 per unit Fixed costs $19,500 Instructions (a) What is the contribution margin ratio? (b) What is the break-even point in dollars? (c) What is the margin of safety in units and dollars? (d) If the company wishes to increase its total dollar contribution margin by 40% in 2018, by how much will it need to increase its sales if all other factors remain constant?

Answer 1

a.) Contribution Margin Ratio :

Contribution = Sales - Variable Cost = 40 - 15 = $ 25

Contribution Margin Ratio = 25/40*100 = 62.5% or 0.625

b.) Break Even Point in dollars:

BEP = Fixed Cost/Contribution Margin Ratio = 19500/0.625 = $ 31,200

c.) Margin of Safety:

Margin of safety in units = Current Sales-BEP Sales/Sale price per unit

= 96,000-31,200/40 = 1620 units

Margin of Safety in dollars = Current Sales-BEP Sales

= 96,000-31,200 = $ 64,800

d.)

d.) (werent contribution in dollars : sales (2400 x 40) (-) Variable costs (2400x15) $36000 Contribution $ 600DD $ 96500 Increased contribution = = 60500 + 40.4. $ 84,00D Sales to generate desired contribution: Assume no. of units to be sold as x Sales (x (x) 40) 408 (-) Variable costs (X(X) 15) 158 Desired contribution $ 84500 40% - 15x = 84000 : 25x = 84000 . X = 3360 units. % increase in sales = 3360-2400 x 100 = 40-%0. 2400 sales Hence the company will have to of 3360 units, if all other remain constant. make factors